Free tips to avoiding a volatility crush when trading options

Monday, July 6th, 2009 - Enfinium International

Have you ever traded an option before and lost money even though you got the direction right? Well you probably experienced a volatility crush.

A volatility crush is simply where an option moves from a period of high implied volatility to low implied volatility. The most common scenario is just before earnings. You will find implied volatility to be high and then after, volatility will rush out causing the option to be significantly less in premium. If you are a holder of a long option during this period you will be at the mercy of what’s known as a volatility crush.

The easiest way to protect yourself from a volatility crush is not to buy an option during a period of uncertainty. An example of such a period would be during earnings, or awaiting the release of product test results. Before entering a position you should always check for recent news and also chart the implied volatility. Most option brokers will be able to provide you with the necessary tools.

During periods of high volatility one should sell premium or instead of buying single options use a spread strategy.

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Enfinium International offers a Global trading platform which consists of a vast array of advanced orders and tradable products. Our systems eliminate the need for multiple accounts with different currencies across multiple platforms.

You will no longer need to contact the trading desk for option quotes on the ASX market as you have a quote request function within the trading platform. This means that with a simple click of the mouse an electronic message will be sent to the market makers and they will respond with a price visable to the whole market. If you are with another stock broker online then contact us today to find out how Enfinium International can be beneficial to you.

If you prefer for an Investment Manager to trade on your behalf you can visit the Enfinium Capital Management website. The current strategies open to the general public are a Global Volatility Porfolio and a Long / Short Equity Portfolio.The Media OfficerP: 02 9220 3579W:www.enfiniuminternational.com.au

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Have you ever traded an option before and lost money even though you got the direction right? Well you probably experienced a volatility crush.